Ms Yingluck, who has faced six months of protests aimed at toppling her government, denied wrongdoing.

"Throughout my time as prime minister I have given my all to my work for the benefit of my countrymen... I have never committed any unlawful acts as I have been accused of doing," Ms Yingluck said in a televised news conference.

"From now on, no matter what situation I am in, I will walk on the path of democracy. I am sad that I will not be able to serve you after this."

Commerce Minister Niwatthamrong Boonsongphaisan will step into the prime minister's role and says the caretaker government will press ahead with plans for a July 20 election.

"The caretaker government's responsibility now is to organise an election as soon as possible," he said.

"I hope the political situation will not heat up after this."

The country's Constitutional Court found Ms Yingluck violated the constitution when she dismissed the National Security Council chief in 2011.

"The judges unanimously rule that Ms Yingluck abused her prime minister status and interfered in transferring (Thawil Pliensri) for her own benefit," the president of the nine-member court, Charoon Intachan, said in a televised ruling.

"Therefore her prime minister status has ended... Yingluck can no longer stay in her position acting as caretaker prime minister."

Nine cabinet ministers who endorsed the decision to transfer the security chief must also step down from office.

Renewed fears of violence

Government supporters are planning a mass rally on the outskirts of Bangkok on the weekend, but smaller factions say they'll move into the capital from today.

Anti-government protestors are also still based in the city and there are fears the two groups could clash.

In addition to Wednesday's court ruling, Ms Yingluck could also face a criminal charge if the anti-graft agency indicts her over the government's controversial rice subsidy program.

She is accused of dereliction of duty over the scheme that critics say is riddled with corruption and has run up huge losses.

The National Anti-Corruption Commission is expected to deliver its verdict later this month.

If found guilty on this count, Ms Yingluck could face a five-year ban from politics.

Bangkok has been rocked by months of sometimes violent demonstrations to unseat Ms Yingluck.

The protests, since November, form part of a long-running crisis that broadly pits Bangkok's middle class and royalist establishment against the mainly poor, rural supporters of Ms Yingluck and her brother, ex-premier Thaksin Shinawatra.

Mr Thaksin was ousted by the military in 2006 and now lives in exile to avoid a jail term handed down in 2008 for abuse of power. His opponents accuse him of corruption and nepotism.

Meanwhile, the United States has called for a peaceful and democratic solution to the current crisis, saying this "should include elections and an elected government".

"We continue to urge all sides to resolve Thailand's political tensions in a peaceful and democratic manner so that the Thai people can choose political leadership they deserve," State Department spokeswoman Jen Psaki said.